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The New Wave of Social Entrepreneurship

The Challenge

In the aftermath of the collapse of the western financial system, many observers agree that neither unfettered financial markets nor invasive regulation are able to ensure that financial and business leaders will necessarily act in the public interest.

While governments are pondering how to provide a legal and political framework that better aligns the needs of businesspeople and society at large, a new class of economic agents has emerged that aim to give explicit consideration to both social and economic gains.

These agents are the social entrepreneurs. Armed with the tools of commerce and markets, they use their creativity, skill, cunning and hard work to found social enterprises which deploy the methodology of capitalism for outcomes of a social nature.

Social businesses have been developed and are prospering which effectively create, in different measure, financial and social returns. They harness capital from a new breed of socially minded investors, whose returns horizons have broadened from a focus purely on financial return and risk, to one which also addresses the social element of returns. Such investors have moved on from the Socially Responsible Investment (SRI) concept of the 1980s to become more proactive and positive in their investment. Two asset classes from the social investment arena have already entered the traditional investment mainstream (Cleantech and Microfinance) which has greatly increased capital flows to these sectors.

Which global problems can and should be addressed most effectively by social entrepreneurship and social investment? In which asset classes will it prove particularly effective in the future, and how can we increase their importance in these classes? How can governments provide an institutional and legal setting to enhance the power of social entrepreneurship to address problems such as poverty, inadequate infrastructure, health problems, education and training, welfare provision? How can social entrepreneurs interact with international organizations and NGOs to promote the global public interest? To what extent will government intervention or interaction with NGOs undermine the credibility and long term effectiveness of social entrepreneurship?

Proposals

New funds are created easily with the stroke of a pen and the transfer from a bank account. On the other hand, great enterprises take a decade or more to bring into existence. We urge that all parties ...

New funds are created easily with the stroke of a pen and the transfer from a bank account. On the other hand, great enterprises take a decade or more to bring into existence. We urge that all parties address this problem through more strenuous effort to build businesses and a simultaneous de-emphasis on new funds. In the absence of sufficiently attractive social business propositions increased funding will only dampen returns, obviously. The services which will increase supply include “investor readiness” services, which assist social entrepreneurs by turning their projects into “backable” projects. A greater emphasis on mentoring of entrepreneurs and

Mainstream entrepreneurs have an entire infrastructure which is designed to assist them to be successful. It includes bankers, lawyers, accountants, analysts, the venture capital community, advisors, ...

Mainstream entrepreneurs have an entire infrastructure which is designed to assist them to be successful. It includes bankers, lawyers, accountants, analysts, the venture capital community, advisors, consultants and others who, in varying quality, help entrepreneurs to succeed. Social entrepreneurs have no such infrastructure. We recommend it be developed. Private companies and foundations as well as governments and NGOs all over the world are beginning to put this infrastructure into place. Mainstream players in these markets would be well-advised to consider entry thereby leveraging their expertise and skill set, but need to be conscious of the multi-faceted objective sets of social

Regulators are rightly feeling a bit “gun-shy” about innovation in financial markets—especially around investment vehicles. The explosion of many of the newest asset classes has left both regula ...

Regulators are rightly feeling a bit “gun-shy” about innovation in financial markets—especially around investment vehicles. The explosion of many of the newest asset classes has left both regulators and investors with declining risk appetites. The fact that social entrepreneurs and many of the socially minded investors behind them are not solely interested in financial returns at all costs makes them unusual—and in our view, well-suited to the New Economy. However, by definition that means that existing financial instruments are also not suitable. The social mission of the enterprise is very ruthlessly protected and not subject to the “market for control”.

Tax laws in most countries fail to fully adjust for the negative externalities caused by economic agents. Polluters are increasingly paying for their damage, but few observers believe they are charged ...

Tax laws in most countries fail to fully adjust for the negative externalities caused by economic agents. Polluters are increasingly paying for their damage, but few observers believe they are charged their full marginal cost to society for the harm they cause. That is simply borne by existing and future generations of taxpayers. In the banking system, we have learned that the state bore the explicit guarantee of the system, at a cost of trillions of Euros. This is a negative externality which, in few of the proposals we have seen, will earn back such sums. The same is true

There is an obvious source of significant new capital that governments could create for social investment without having to put the money up themselves or issue any new tax credits (which given the wo ...

There is an obvious source of significant new capital that governments could create for social investment without having to put the money up themselves or issue any new tax credits (which given the world’s current economic challenges new funding and additional tax credits are hard to come by). That source is in private foundations. The current way most private foundations are organized and regulated in developed countries is they are required to donate or grant only somewhere between 3 and 6% of their assets in any given year to charities. The other 94 to 97% of their assets are generally

The easiest way to explain this idea is by using the example of how our strategy has evolved at Social Capital Partners. We began by funding and working with social enterprises which we defined as bus ...

The easiest way to explain this idea is by using the example of how our strategy has evolved at Social Capital Partners. We began by funding and working with social enterprises which we defined as businesses where at least half the employees were disadvantaged. Over our first five years we financed and worked with a handful of these companies to help them grow, achieve profitability and attain a sustainable livelihood for the people that were employed. On the one hand we were very pleased with the results. The social enterprises in our portfolio from this phase are terrific companies that

Why would it be a good option to ensure existence of a microcredit organization as a socially responsible business? Microcredit has found a new market - as a financial service. It has recognized effor ...

Why would it be a good option to ensure existence of a microcredit organization as a socially responsible business? Microcredit has found a new market - as a financial service. It has recognized effort of low income people to work towards their own solutions in finding economic potentials in their communities. Credit helps maintain and sometimes even grow these potentials. Microcredit organizations in Bosnia and Herzegovina ensured interest in serving low income people - competition was/is high and people were ensured access to this financial service. Interest rates were going down. Financial offer became a visible, respected and criticized, too.

Currently we find ourselves in uncharted territory with respect to the future of capital markets. Whilst the prospect of an imminent meltdown in global markets appears to have receded, the likely long ...

Currently we find ourselves in uncharted territory with respect to the future of capital markets. Whilst the prospect of an imminent meltdown in global markets appears to have receded, the likely long-term impacts of the global recession are still difficult to discern. Keynesians may have regained significant ground but the neo-liberal rearguard reaction has also been strong and concerted – so much so that the Economist (21.8.09) is now recasting the recession as an opportunity to reduce rather than increase the size of government going forward. However, what seems plain is that financial business as usual will not be

As pointed out by Diane Coyle in her “Paradoxes of Prosperity” a high-tech economy is one with a high density of social capital. The implications of the financial crisis are: • To get out of the ...

As pointed out by Diane Coyle in her “Paradoxes of Prosperity” a high-tech economy is one with a high density of social capital. The implications of the financial crisis are: • To get out of the crisis we need a new wave of innovations and a new generation of entrepreneurs which will respond to the global challenges the planet is facing, such as climate change, ageing population, food and water crisis, pandemic diseases. This implies structural change and profound reforms in countries and a new international co-operative architecture; • The financial crisis might be over, the economic crisis may have

Related Challenges

The financial crisis in the western financial system seems to have past its apex and the banking system, especially certain large investment banks, appear in nearly rude health. However, the cost ...

The financial crisis in the western financial system seems to have past its apex and the banking system, especially certain large investment banks, appear in nearly rude health. However, the cost of the rescue has been borne by governments, or more specifically the taxpayer.

The global financial crisis has raised fundamental questions about capitalism. Questions of morals in society and business have regained momentum, demanding more acceptance of responsibility for a sus ...

The global financial crisis has raised fundamental questions about capitalism. Questions of morals in society and business have regained momentum, demanding more acceptance of responsibility for a sustainable, value-oriented society, particularly from business. With this in mind, the growing social business sector might be one of many solutions to the transformation of the capitalist system.